Code of Professional Practice

Transcription

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2 Code of Professional Practice for Insolvency Practitioners Third Edition 1 January 2014 ARITA ACN Level 5, 33 Erskine Street, Sydney NSW 2000 Australia GPO Box 9985, Sydney NSW 2001 t f e admin@arita.com.au arita.com.au AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION

3 Foreword... viii Part A: Introduction Introduction and Purpose of the Code Interaction with Legislation and Regulation Principles based Must, should and may Regulators and courts Other professional standards Application of the Code The Insolvency Profession Introduction Insolvency practitioners Powers Control of Assets and Activities Duties and Obligations Supervision and Scrutiny Skill and Judgment Stakeholders Creditors Employees Suppliers Regulators The courts Statutory agencies The public In corporate insolvency only Shareholders Directors In personal insolvency only The Insolvent The spouse of the Insolvent Official Trustee and the Official Receiver Definitions and Interpretation Construction Defined Terms Part B: The Principles Part C: Guidance AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE i

4 5 Integrity, Objectivity & Impartiality Integrity Objectivity Impartiality Structuring of assets Confidential information Independence The Test of Independence Not a State of Mind Possible Conflicts - How Real or Perceived? Timing Allegations of lack of independence The Declaration of Independence, Relevant Relationships and Indemnities Rationale for the Independence Principle Threats to Independence Independence of the Firm Previous firms Trivial relationships Referrals from other Professionals and Creditors Ongoing relationships with creditors Professional Relationships within two years Exceptions to the two year rule Professional relationships beyond two years Relationships with Associates Associate defined Examples of Associates Information to be provided Concurrent Appointments to related parties Group Company Appointments Individual/Company Appointments Joint personal insolvency appointments Other Relationships Family Business Friendship Animosity Pre-appointment disclosure of proposed basis of Remuneration AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE ii

5 6.14 Up-front payment for Remuneration Companies Personal Insolvencies Court appointment disclosure requirements Consent to Act Court Liquidation Currency of Consents in Court Appointments DIRRI after a Court Appointment Independence processes and documentation Format of the DIRRI Content of the DIRRI Additional requirements for appointments under Part X of the Bankruptcy Act The nature of explanations / disclosures in the DIRRI Signing of the DIRRI Timing Replacement Appointees New Information Post Appointment Actions threat to Independence Identified Non-precluded Relationships Precluded Relationships Limited Value of Disclosure Communication Need for Effective Communications Plain English Use of Templates Tailoring reports Document Construction Modes of Communication Use of Websites Use of Electronic Communications Communications Training and Skill Development Information Sheets for stakeholders Use of specialists Specific forms of communication Timeliness Statutory Time Limits Reduction of Risk Minimisation of Cost AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE iii

6 9.4 Minimising Negative Emotion Failure to meet Deadlines Duty to Advise Policies, Processes and Education Extensions of Time Dealing with Property Competition and Promotion Introduction Advertising, publicity and solicitation Call Centres Internet Statutory Advertisements Other Administration Advertisements Misleading and Deceptive Conduct Charge-out Rate and Value Comparison Relationship Marketing - Inducements Sponsorship Replacing an Incumbent Notice No Solicitation Conduct at the Meeting Transitioning or parallel appointments Competence Continuing professional development Specialisation Use of specialist services Necessary and Proper Remuneration Necessary Work Properly performed Deciding what work to undertake Outsourcing Work that cannot be remunerated Staff levels and numbers Setting hourly rates Costs of claiming Remuneration Costs of communicating with Regulators or professional bodies Disbursements AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE iv

7 What is a Disbursement? What are not Disbursements? Necessarily and properly incurred Meaningful disclosure in Remuneration claims Recording of Work Done Bases of calculation Time based charging Prospective Fee Approval Fixed fee Percentage Success or Contingency Fees Information to be disclosed and when Court requirements Information to be provided for all Remuneration bases Sources of Funding Department of Employment payments Assetless Administration funding Litigation funding Creditor funding Secured creditor funding Indemnities and up-front payments General guidance on reporting At the meeting Changing basis of Remuneration Approval before drawing Remuneration Drawing of Remuneration Monies received in advance Remuneration drawn inappropriately Resources, expertise and capacity Practice Quality Assurance Policies Maintenance of Administration files Checklists Compliance Management Risk Management Policies Identity of Director(s)/individual Insolvent(s) AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE v

8 20.3 Joint and Several Appointments Complaints Management Part D: Practice Notes and Templates Declaration of Independence, Relevant Relationships and Indemnities DIRRI Template Remuneration Report Overview and Explanation of the Recommended Report Structure of the Recommended Reports Initial advice to creditors Approval requests Pre-appointment proposed basis of Remuneration disclosure Creditors Meetings Introduction The decision to call a meeting Calling the meeting Venue and time of meeting Notice of the meeting Provision of information prior to creditors meeting List of Creditors Proxies Form of Proxy Validity of Proxies Proof of debt / Statement of claim Conduct of the meeting Attendance at the meeting Use of technology Information to be provided to the meeting Use of the casting vote Attendance records Questions at the meeting Chairperson and control Committee of Inspection / Creditors Reporting on the meeting Recording the meeting Conduct of practitioners that are not the appointee Reports under s 439A of the Corporations Act Introduction AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE vi

9 25.2 Definitions Professional Judgment Court involvement Legislative requirement Content of the 439A report Purpose of the report and Summary Background Information Offences, voidable transactions and insolvent trading Estimated return from a winding up Effect on employees Proposal for a deed of company arrangement Administrator s Opinion Other Material Information Incomplete or additional information Report where Deed alters Statutory Priorities Legislative requirement Content of statement Administrator s Opinion on altering Statutory Priorities Other Material Information Additional information Expert opinions AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE vii

10 Foreword As part of its commitment to building professional excellence, the Australian Restructuring Insolvency and Turnaround Association (ARITA) is proud to release the Third Edition of its Code of Professional Practice. The Code is the fundamental building block upon which the insolvency profession sets and manages standards of professional conduct. We were gratified to see the continuing acceptance of the Code by the profession, Regulators and the Courts following the release of the second edition. This third edition seeks to take into account the feedback that we continue to receive on the Code s operation and to include other issues that have been identified. The Code is a living document. It will continue to be amended from time to time to reflect changes and developments in insolvency law and practice and this release of the third edition demonstrates ARITA s continued commitment to maintaining the highest of professional standards. Effective Dates The first edition of the Code was effective in two stages. The sections of the Code dealing with Independence and Remuneration were effective from 31 December 2007, with a transition period which expired on 1 April The balance of the first edition was effective from 21 May The first edition of the Code was withdrawn on 31 December The second edition of the Code was effective from 1 January 2011 to 31 December The third edition of the Code is effective from 1 January The update to the Code would not have been possible without the extensive input from members, Regulators and the dedicated staff of ARITA. David Lombe President ARITA Denise North Chief Executive ARITA AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE viii

11 Part A: Introduction 1 Introduction and Purpose of the Code The primary purposes of the Code are to: set standards of conduct for insolvency professionals; inform and educate ARITA Members as to the standards of conduct required of them in the discharge of their professional responsibilities; and provide a reference for stakeholders and disciplinary bodies against which they can gauge the conduct of ARITA Members. Members should be guided not only by the specific terms of the Code but also by the spirit of the Code. The Code is in four parts: Part A introduces the Code Part B sets out the overarching principles. Part C contains detailed guidance and examples to assist in applying the principles Part D contains templates and practice notes that should be adopted for use in practice. Under the Constitution, Members are required to comply with the Code. Failure to do so may result in disciplinary proceedings in accordance with the Constitution. 1.1 Interaction with Legislation and Regulation The Code is not a simple restatement of Legislation, regulations and judicial pronouncements, rather it is a set of principles and guidance based on standards of conduct that are founded in established precedent. Some standards imposed on Members are higher than those existing legal requirements. Where the law is silent, or ambiguous, the Code introduces principles to clarify understanding of the desired behaviour. The goal is the creation of a system of professional standards, which protects the integrity of the insolvency system, and is: fair; effective; practical; and readily understood. 1.2 Principles based The practice of insolvency is often complex and varied. It is impossible to conceptualise and codify every possible situation or scenario. Accordingly, the Code establishes broad principles that can be applied to every situation. The use of principles avoids the prospect of loopholes being used to justify conduct by distinguishing the particular situation from restrictions set down in a prescriptive list. As statements of principle are necessarily general, explanatory guidance is provided. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 1

12 The guidance will also assist stakeholders in understanding the limits of the principles so that they do not have unreasonable expectations of what Practitioners are required to do. Practitioners are expected to use their professional and commercial judgment and when they have doubt should seek legal or other advice, or the assistance of the Court, before proceeding. 1.3 Must, should and may The Code uses a three level hierarchy of wording to describe and explain its requirements: mandatory requirements (must / must not); recommended behaviours (should / should not); and permissive statements (may). Where a Practitioner decides not to follow a recommendation (should / should not), then the practitioner will need to be able to justify why the recommended course of action was not taken and why the course taken was within the spirit and intent of the relevant principle. In these situations, the Member should: record the reasoning used for diverging from the Code; state the rationale used to determine that the action followed is not proscribed by the Code; and be able to explain that the path taken results in an equal or better outcome for stakeholders. 1.4 Regulators and courts The insolvency profession is regulated by the Australian Securities and Investments Commission (ASIC) and the Australian Financial Security Authority (AFSA). The conduct of Practitioners may be the subject of review by the relevant disciplinary tribunals and by the courts. It is anticipated that the Code will be used by Regulators, the tribunals and courts to assist them in enforcing acceptable insolvency practice and proper professional standards. At the same time, the Code remains subject to the views of the courts, which may decide not to accept or follow particular requirements or guidance in the Code. In such cases, the Code will be amended to properly reflect the law. Also, a Member may obtain court directions or orders that differ from requirement or guidance in the Code, for example in relation to independence. The Code always remains subject to the law and the courts. 1.5 Other professional standards Most Members are also members of other professional associations. The requirements of other professional associations will, in many areas, be similar to those in the Code, for example APES 330 Insolvency Services. The Regulators also release regulatory guidance that applies to registered liquidators and registered trustees. Practitioners must have regard to such guidance. To the extent that the Code imposes a higher standard on Practitioners than requirements from other associations or the Regulators, the Code will prevail. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 2

13 1.6 Application of the Code The Code applies to all Members of ARITA insofar as they conduct or are involved in the administration of insolvencies, formal and informal. The Code therefore applies not only to liquidators and trustees, but also to lawyers, accountants, financiers and others who are Members of ARITA. These obligations are stated in the Code when it refers to Members. The Code applies to insolvency practitioners in so far as they are appointed to, or contemplating appointment to, any Appointment under the Corporations Act or the Bankruptcy Act. These obligations are addressed in the Code to Practitioners. Members that are practising in the field of insolvency outside of Australia are bound by any requirements in the Code relating to Members, unless in direct conflict with the laws of the jurisdiction in which they operate. Within the definition of Practitioners, the Code refers to, and treats, liquidators, administrators, and controlling/part X/trustees as broadly within the one category, primarily as fiduciaries responsible to creditors. Controllers, although Practitioners, do not have the same fiduciary responsibilities to all creditors. Where appropriate, the Code makes separate mention of Controllers and excludes them from certain requirements of the Code. Members Voluntary Liquidations are also treated differently as they involve the liquidation of a solvent entity, where the interests of shareholders are of primary importance to the winding up process. The Corporations Act treats the independence of liquidators in Members Voluntary Liquidations differently and so does the Code by excluding them from Principles 2 and 3. Examples provided within the Code are for illustrative purposes only and Members must consider the particular facts of each case when determining how the Code applies to them. The fact that a situation or relationship encountered by a Member is not specifically covered in an example given in the Code does not mean that the situation or relationship would be acceptable under the Code. Members must always have regard to spirit and intent of the Code. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 3

14 Table 1: Application of Principles No. Principle Controllers / MVL Practitioners Members 1 In addition to the obligation to comply with the law, Members must exhibit the highest levels of integrity, objectivity and impartiality in all aspects of administrations and practice management. 2 When accepting or retaining an appointment the Practitioner must at all times during the administration be, and be seen to be, independent. 3 Disclosure and acceptance of a lack of independence is not necessarily a cure. 4 Members must communicate with affected parties in a manner that is accurate, honest, open, clear, succinct and timely to ensure effective understanding of the processes, and their rights and obligations. 5 Members must attend to their duties in a timely way. x x x x x x x x x x x 6 A Practitioner must not acquire directly or indirectly any assets under the administration of the Practitioner. x x 7 When promoting themselves, or their Firm, or when competing for work, Members must act with integrity and must not bring the profession into disrepute. x x x 8 When dealing with other Members in transitioning or parallel appointments, Practitioners must be professional and cooperative, without compromising the obligations of the Practitioner in their own particular appointment. 9 Members must maintain professional competency in the practice of insolvency. 10 A Practitioner is entitled to claim Remuneration, and disbursements, in respect of necessary work, properly performed in an Administration. x x x x x x AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 4

15 No. Principle Controllers / MVL Practitioners Members 11 A claim by a Practitioner for Remuneration must provide sufficient, meaningful, open and clear disclosure to the approving body so as to allow that body to make an informed decision as to whether the proposed Remuneration is reasonable. 12 A Practitioner is only entitled to draw Remuneration once it is approved and according to the terms of the approval. 13 When accepting an appointment the Practitioner must ensure that their Firm has adequate expertise and resources for the type and size of the administration, or the capacity to call in that expertise and those resources as needed. x x x x x x 14 Members must implement policies, procedures and systems to ensure effective quality assurance. 15 Members must implement policies, procedures and systems to ensure effective compliance management. 16 Members must implement policies, procedures and systems to ensure effective risk management. 17 Members must implement policies, procedures and systems to ensure effective complaints management. x x X x x X x x X x x X AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 5

16 2 The Insolvency Profession 2.1 Introduction Registered insolvency practitioners in Australia are usually qualified accountants with experience in the administration of insolvencies. Entry criteria are established by Legislation. Registration as a liquidator or trustee is managed by ASIC and AFSA respectively. Insolvency is a difficult situation for those involved. Every insolvency involves financial loss for creditors, in particular employees who may also lose their source of employment. An individual and their family may lose their home and other assets. The consequent emotional stress often creates a difficult environment. Insolvency can result in financial and social disorder. The regime of insolvency law seeks to control this disorder while a process of balancing the respective rights and entitlements of those parties is pursued. 2.2 Insolvency practitioners Insolvency Practitioners: are fiduciaries. They are entrusted with property of the Insolvent and required to deal with it in accordance with the law and consistently with the obligations and duties of fiduciaries; are appointed to implement the insolvency regime and to deal with and determine the rights and entitlements of all the parties involved; owe responsibilities to the creditors as a whole, not just to one creditor (except where appointed as a Controller, where the principal responsibility is to their appointor) and other parties; are experienced and qualified professionals who are expected to display high degrees of application and professional competence; are subject to court and regulatory supervision; have specific legal obligations under the Legislation; are required to report offences identified during the conduct of Administrations to the Regulators; are required to exercise a high level of commercial and professional judgment; operate in difficult circumstances, often involving distressed parties, competing demands, strict deadlines, and complex legal, financial and factual issues; can be personally liable for debts incurred during an administration; are legally entitled to be remunerated for the work they do as a priority payment in the administration; and from time to time will accept and complete Administrations even though there are insufficient funds to pay their Remuneration and disbursements. 2.3 Powers Practitioners are given extensive powers, including to: secure and realise the assets of the Insolvent for the benefit of creditors (or Secured creditor in the case of a Controller); AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 6

17 compel individuals involved to answer and explain the circumstances of the insolvency; investigate and refer breaches of the Legislation to appropriate authorities; and decide the claims of the various parties. 2.4 Control of Assets and Activities The appointment of a Practitioner to the affairs of a person or a company is legally and practically significant. On being appointed as a trustee in bankruptcy, all divisible property of the Insolvent vests in the trustee, who immediately assumes power over and responsibility for that property. Similarly, a liquidator or administrator immediately takes control of the company, including responsibility for its assets, employees and other aspects of its business. Those creditors who had previously dealt with the individual or the company are required to deal with the Practitioner. Once that initial appointment occurs, the Practitioner (except where appointed as a Controller) has the authority and responsibility to deal with the competing interests of the various parties. The creditors, who are likely to have suffered from the financial demise of the Insolvent, have interests to be protected; principally that realisation of assets of the Insolvent are made available from which any dividend might be paid. At the same time, the Practitioner has to ensure that creditors are treated fairly in accordance with their legal rights, including to ensure that those assets are not seized by one particular creditor to the disadvantage of others. Complexities of creditors interests are compounded further by issues of secured and priority claims. In adjudicating on interests, and payment of dividends, the Practitioner will follow the priorities set out in the Legislation. Creditors are entitled to expect that a Practitioner will apply expertise, experience and professional judgment when making decisions about the conduct of the administration. The Practitioner can and may seek the views or approval of creditors, and often has to make commercial and professional decisions in situations of creditor conflict or stalemate. 2.5 Duties and Obligations The standards of conduct expected of Practitioners have their origin in the special position Practitioners occupy. They have: extensive power and autonomy; control of assets; and power to adjudicate on competing, conflicting and often hostile interests. In corporate appointments Practitioners become officers of the company and are required to adhere to the obligations and duties of company officers. These combine to create a complex web of fiduciary responsibilities. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 7

18 Practitioners: owe a fiduciary responsibility to the parties involved; have a duty to be fair and act without bias in assessing the competing interests of stakeholders; have an important role in protecting the public interest, by identifying and reporting to creditors and the Regulators on a range of issues; and have important statutory investigatory and reporting obligations they are required to pursue even though the costs of investigation and reporting will reduce the funds available to creditors. This distinguishes a Practitioner s position from that of other professionals. Normal professional relationships have: an identifiable client who has willingly selected the professional; a contract for professional services which can be terminated at any time in accordance with the contract; contracted arrangements for Remuneration; and may or may not have a fiduciary component. With the exception of appointments as a Controller, in insolvency there is no single client. In an appointment as a Controller the Practitioner s primary, but not sole, responsibility is to maximise the return to the Secured creditor who appointed them. 2.6 Supervision and Scrutiny Practitioners are subject to scrutiny by: creditors, (particularly through creditors meetings and committees of inspection); directors, debtors and others associated with the Insolvent; Regulators; government agencies; the courts; and ARITA and other professional bodies. The range and extent of the scrutiny that applies is beyond that of most other professionals. 2.7 Skill and Judgment Insolvency involves the difficult intersection of accounting, business and law. Skills are needed to handle complex situations which invariably happen quickly, with immediate impact on a range of parties beyond the Insolvent. There is great divergence in the types of commercial activities. The business of the insolvent company may range from that of a builder with two employees to an airline with several thousand, and the affairs of the insolvent individual may involve contentious family law disputes, or complex personal tax issues. Assets may be at risk of being disposed of, or serious business decisions may need to be made. Quick commercial judgment and business acumen are required, in particular in view of the fact that a positive commercial outcome by way of a return to creditors is all the more difficult in circumstances of limited funds. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 8

19 3 Stakeholders Part of the complexity of insolvency is the broad range of stakeholders. Each stakeholder group has a unique perspective, expectations, and obligations. Often they have competing, mutually exclusive interests. The Practitioner also has his or her own legitimate interests which were dealt with in the preceding section. The nature of the interests of the various stakeholders are summarised below. 3.1 Creditors Creditors: are parties to whom a debt is owed by the Insolvent and will have a right to prove for that debt in the Administration. will normally have traded with the Insolvent with an expectation of being paid for services provided, goods sold, or moneys loaned; are parties whose rights of payment by the Insolvent are replaced by a right to a dividend; are usually disadvantaged financially; are reliant on the Practitioner s experience and skill in having their losses recouped; rely on the Practitioner to be informed about the administration; have some obligation and interest in informing and otherwise assisting the Practitioner in making decisions where creditor approval is required; are parties whose dividend payments are the outcome of work done by the Practitioner in realising or recovering funds; have power to approve Remuneration; and may, if they have received a preference payment, be required to repay the preference, notwithstanding that they may have additional monies owed. 3.2 Employees Employees: can be more immediately affected by the insolvency of their employer, in terms of immediate loss of wages, and accrued entitlements; can rely on statutory priorities over other creditors and may have an right to claim all or part of their entitlements under the government safety net schemes; and can require particular attention and consideration by a Practitioner above and beyond other creditors. 3.3 Suppliers Suppliers: are usually creditors of the Insolvent with claims in the insolvency and may be subject to claims by the Practitioner, for recovery of preferences or for disputed retention of title claims; are persons whose support (for ongoing supplies or services to the Insolvent) is often needed for a trade-on of an Insolvent in Administration; and can require particular attention by a Practitioner if such on-going support is required. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 9

20 3.4 Regulators Regulators: have a statutory interest in the proper administration of the legislation; release regulatory guidance to assist Practitioners to comply with their obligations; have statutory powers to review the conduct of Practitioners, including powers to initiate a review by the courts of the Remuneration claimed; are available to assist creditors with complaints and concerns; have an obligation to government and the courts; have a role in the registering and regulation of Practitioners; and in the case of personal insolvency, the power to review or approve Remuneration. 3.5 The courts The courts: may assist the Practitioner in determining complex issues by giving directions, determining and enforcing rights of recovery, and protecting Practitioners as required; may determine the rights and responsibilities of all parties, including to review the decisions of Practitioners; may review the performance and Remuneration of a Practitioner; rely upon the honest and competent representation of parties to assist the courts in making decisions in accordance with the law and to advance the interests of justice; expect and enforce high standards of conduct; and can make orders which override any of the requirements of this Code (for example, to allow an appointment which the Code may otherwise prevent). 3.6 Statutory agencies Statutory agencies, such as the Australian Taxation Office and Department of Employment: may be creditors in the Administration; may have a statutory interest in the conduct of the Administration; and have statutory powers in respect of specific aspects of the Administration. Practitioners may have obligations to notify statutory agencies of their Appointment and comply with ongoing reporting obligations. 3.7 The public The public: has an interest in ensuring that the law is clear and understood, that it is upheld and also that commercial morality is maintained; has an expectation that improper conduct will be investigated and reported to the relevant authorities; and has an expectation that the insolvency profession is staffed by persons of high competence and integrity. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 10

21 3.8 In corporate insolvency only Shareholders Shareholders: have an interest in the Insolvent s affairs being properly administered including so as to ensure that surplus funds, if any, are paid to them; may also be creditors and have separate claims in that capacity; and may be liable to the Insolvent for unpaid share capital Directors Directors: have obligations under the law with a view to assisting in the proper administration of the Insolvent including in any recoveries for the benefit of creditors; can be personally liable for losses to the administration at the suit of the Practitioner, or in some cases the Regulator, or the Australian Taxation Office; and may also be creditors or shareholders and have separate claims in those capacities. 3.9 In personal insolvency only The Insolvent The Insolvent: has obligations under the law to assist and co-operate with the trustee; and has duties owed to them by the trustee, including to protect them from creditor claims The spouse of the Insolvent The spouse of the Insolvent: is often the joint owner of the matrimonial home with the Insolvent or has an interest in that and other joint assets, in equity or under family law, which the trustee needs to assess Official Trustee and the Official Receiver The Official Trustee: undertakes the administration of the majority in number of bankruptcy estates with the remainder handled by Practitioners; and may transfer the administration of estates to Practitioners. The Official Receiver: provides services to registered trustees in relation to the filing of documents, issue of statutory notices, maintenance of the National Personal Insolvency Index and the conduct of examinations. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 11

22 4 Definitions and Interpretation 4.1 Construction The meanings of the words must/must not, should/should not and may are explained at 1.3. These words are used throughout the Code and indicate the standard of conduct required of the Practitioner. The Code is meant to complement and be additional to any statutory obligations and regulatory requirements that Practitioners have in carrying out their responsibilities. The application of the Code to ARITA Members is detailed at Defined Terms The following defined terms are used throughout the Code, shown commencing in capitals. Unless otherwise indicated, the terms have the meanings below. Administration Alternate Appointment Approving body ARITA Associate Bankruptcy Act Bankruptcy Act 1966 Cap Co-appointments Refers to an Appointment under either the Bankruptcy Act or the Corporations Act. In some cases, there may be corporate insolvency appointments under other legislation such as co-operatives and Aboriginal corporations legislation. Where appropriate, the term applies to a solvent administration under Chapter 5 of the Corporations Act. The Practitioner nominated to replace the Incumbent. The formal legal appointment of a Practitioner as a trustee in bankruptcy, a trustee appointed under s 50 of the Bankruptcy Act, a debt agreement administrator under Part IX, or a trustee under Part X; or as a liquidator or provisional liquidator, a voluntary administrator or a deed administrator under Part 5.3A of the Corporations Act, or as a controller; or as a scheme manager under Part 5.1. The word Appointee has a parallel meaning. The body with authority to approve Remuneration or a course of conduct; usually the creditors, the committee of creditors or the court. Australian Restructuring Insolvency and Turnaround Association. For Administrations under the Corporations Act, Associate has the meaning according to that Act. For personal insolvency administrations, Associate is a spouse, dependent or direct relative of the Insolvent, or the spouse or dependant of a direct relative, and any entity with which the Insolvent or any of the persons previously mentioned are associated with (refer 6.10 for further information). An upper limit for the amount of Remuneration approved for prospective fee approval. It is not a fixed fee. May be used in the context of a capped amount. Where more than one Practitioner is appointed to an Administration, either jointly or jointly and severally. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 12

23 Code Controller Corporations Act Corporations Act 2001 DIRRI Disbursements Entity Fiduciary duty Firm Incumbent Indemnity Insolvent Legislation Material interest Member The Code of Professional Practice issued by ARITA for Insolvency Professionals as amended from time to time. A person appointed as either a controller or managing controller under Part 5.2 of the Corporations Act; or a receiver appointed to property of an individual. Does not include a receiver appointed by the court. The Declaration of Independence, Relevant Relationships and Indemnities. Refers to necessary financial outlays incurred or paid by the Practitioner in the administration. The term includes expenses, costs and disbursements. A body corporate, a partnership, an unincorporated body, an individual or a trust, including in relation to a trust, the trustee. The duty owed by a liquidator or trustee to exercise rights and powers in good faith for the benefit of relevant stakeholders in an insolvency. (a) A sole practitioner, partnership, corporation or other entity of professionals; (b) An entity that controls such parties through ownership, management or other means; (c) An entity controlled or influenced by such parties through ownership, management or other means; or in which they share in the profits; or (d) Practices operating under the same or substantially the same business name, whatever the financial arrangement (refer 6.4 for further information). The Practitioner acting as the Appointee. Any arrangement, either directly or indirectly, to make a payment to the Practitioner for the purposes of meeting Remuneration or Disbursements of the Practitioner. The entity, either an individual or corporation, who is insolvent, whether they are yet subject to an Administration or not. The Bankruptcy Act and the Bankruptcy Regulations and the Corporations Act and Corporations Regulations. The term also refers to other legislation under which Appointments can be made. Ownership, which is material to either the owned Entity, or material to the Practitioner, his or her partners, Firm, staff, or their respective Relatives; or in which the Practitioner, his or her partners, Firm, staff or their respective Relatives has any management involvement whatsoever. Members in any capacity of ARITA, and, unless otherwise indicated, includes the Member s Firm, partners and staff. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 13

24 Practitioner Pre-appointment advice Professional relationship Professional services Referring Entity Regulators Relative Remuneration Secured creditor Specific referral Upfront payment A Member of ARITA who acts under an Appointment, or is considering accepting an Appointment as an Appointee, and, unless otherwise indicated, includes the Practitioner s Firm, partners and managerial employees. Any professional advice, whether providing an opinion or not, provided prior to the Appointment. Any Professional Service under which the Appointee or a partner in his or her Firm, has given professional advice in accounting, insolvency, financial advice, tax or other such areas for the Insolvent and includes an Appointment. All work undertaken by a Member or a Member s firm. An Entity that has provided a Practitioner s contact details to a director(s), debtor or creditor for the purposes of the director(s), debtor or creditor seeking specialist insolvency advice that may result in an Appointment. Australian Securities and Investments Commission (ASIC) and the Australian Financial Security Authority (AFSA) or the Inspector- General in Bankruptcy. The spouse, parent or remoter lineal ancestor, child or remoter issue, or brother or sister of the person. The monies claimed by a Practitioner on account of work performed or to be performed by the Practitioner in the Administration. Also referred to as fees. Includes any creditor whose debt is secured by a security interest under the Personal Property Securities Act, a mortgage over real property or other charge which entitles the creditor to realise the security for the purpose of repaying their debt. Arises where an Appointment is made following the director(s), debtor or creditor being referred to a Practitioner by the Referring Entity. If the Referring Entity provided details of several Practitioners to the director(s), debtor or creditors at the same time, it is still a Specific referral once an Appointment is made. Any payment to a Practitioner prior to the Appointment for the purposes of meeting Remuneration or Disbursements of the Practitioner. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 14

25 Part B: The Principles Conduct Principle 1 Principle 2 Principle 3 Principle 4 Principle 5 Principle 6 Principle 7 Principle 8 Principle 9 In addition to the obligation to comply with the law, Members must exhibit the highest levels of integrity, objectivity and impartiality in all aspects of Administrations and practice management. When accepting or retaining an Appointment the Practitioner must at all times during the Administration be, and be seen to be, independent. Disclosure and acceptance of a lack of independence is not a cure. Members must communicate with affected parties in a manner that is accurate, honest, open, clear, succinct and timely to ensure effective understanding of the processes, and their rights and obligations. Members must attend to their duties in a timely way. A Practitioner must not acquire directly or indirectly any assets under the administration of the Practitioner. When promoting themselves, or their firm, or when competing for work, Members must act with integrity and must not bring the profession into disrepute. When dealing with other Members in transitioning or parallel appointments, Practitioners must be professional and co-operative, without compromising the obligations of the Practitioner in their own particular appointment. Practitioners must maintain professional competency in the practice of insolvency. Remuneration Principle 10 Principle 11 Principle 12 A Practitioner is entitled to claim Remuneration, and disbursements, in respect of necessary work, properly performed in an Administration. A claim by a Practitioner for Remuneration must provide sufficient, meaningful, open and clear disclosure to the Approving Body so as to allow that body to make an informed decision as to whether the proposed Remuneration is reasonable. A Practitioner is only entitled to draw Remuneration once it is approved and according to the terms of the approval. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 15

26 Practice Management Principle 13 Principle 14 Principle 15 Principle 16 Principle 17 When accepting an Appointment the Practitioner must ensure that their Firm has adequate expertise and resources for the type and size of the Administration, or the capacity to call in that expertise and those resources as needed. Members must implement policies, procedures and systems to ensure effective Quality Assurance. Members must implement policies, procedures and systems to ensure effective Compliance Management. Members must implement policies, procedures and systems to ensure effective Risk Management. Members must implement policies, procedures and systems to ensure effective Complaints Management. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 16

27 Part C: Guidance 5 Integrity, Objectivity & Impartiality Principle 1: In addition to the obligation to comply with the law, Members must exhibit the highest levels of integrity, objectivity and impartiality in all aspects of administrations and practice management. 5.1 Integrity Members are required to show high levels of integrity by: being straightforward; being honest; being truthful; and adhering to high moral and ethical principles in the conduct of their practices and appointments. 5.2 Objectivity Members must be objective. This requires Members to exercise their judgment free from: bias; conflict of interest; and undue influence of others. 5.3 Impartiality When exercising their judgment, Members must be impartial by taking care to ensure that they: are not influenced by personal feelings, prejudice or difficult relationships with individual stakeholders; are making decisions based on the known facts; have no direct personal interest; and are not favouring one person or side more than another when applying the law. Before exercising their judgment, Members should take reasonable steps to ascertain the necessary facts to ensure that a sound judgment can be made. 5.4 Structuring of assets A Member must not advise an Insolvent (nor, if the Insolvent is a company, its directors) on how to structure its financial affairs to defeat creditors. A Member is not prevented from providing advice to a solvent Entity on the structuring of its financial affairs. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 17

28 5.5 Confidential information A Member who acquires confidential or personal information in the course of an Appointment must not use that information for any purpose other than the proper performance of the Administration. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 18

29 6 Independence Principle 2: When accepting or retaining an appointment the Practitioner must at all times during the Administration be, and be seen to be, independent. 6.1 The Test of Independence Independence has two parts. A Practitioner must: be independent in fact; and be seen or perceived to be independent. A Practitioner must be independent in fact, that is, they should act and conduct the Administration in an independent manner. A Practitioner must be seen to be independent, that is, they must not accept an appointment, or continue to act under an existing appointment, if: a reasonable and informed third party; on the information available (or which should have been available) at the time; might reasonably form the opinion that the Practitioner might not bring an independent mind to the administration and thus may not be impartial or may in fact act with bias; because of a lack of independence, or a perception of a lack of independence. The requirement for independence as described in the Code does not apply to Controllers who are appointed by the Secured creditor and have a contractual relationship with the appointor. Nor does it apply to liquidators appointed to a Members Voluntary Liquidation. There may nevertheless be independence issues that arise for Controllers and liquidators appointed to Members Voluntary Liquidations under the Legislation Not a State of Mind While Practitioners may consider that their personal integrity and skill makes them immune to the influences of conflicts, this is not the test. This is not a reflection on the integrity of the Practitioner; it is a consequence of the need to preserve the perception of independence. It is important to recognise that there is likely to be contact between the Practitioner and the Insolvent, directors, creditors or advisors to them before the acceptance of the Appointment. Mere contact does not create a threat to independence. What is important is the nature of the relationship between the Practitioner and the various stakeholders. This is discussed at length in the following sections Possible Conflicts - How Real or Perceived? The mere possibility of a conflict is not a bar to accepting or continuing an appointment. The test is whether a reasonable and informed third party on the information reasonably available at the time, could have formed the view that a conflict was likely to arise. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 19

30 The Practitioner must be proactive in anticipating, identifying and uncovering the circumstances that may give rise to a conflict of interest, and not to simply address the issue when the conflict arises Timing The independence test is to be applied: on the facts reasonably available at the time the decision to accept the Appointment; when circumstances change or become known to the Practitioner, and a decision is made on whether to continue the Appointment; and not retrospectively with the benefit of hindsight in relation to facts and circumstances that could not reasonably be expected to have been known or discoverable Allegations of lack of independence Allegations of a lack of independence may be made by self-interested parties wishing to improve their position. For example claims may be made: that directors, or a debtor, chose a Practitioner because of some perceived reputation for being lenient on Insolvents, or less diligent in pursuing matters; by Insolvents and their Associates who are being investigated or sued by the Practitioner; or by a creditor being pursued for a preference. The mere existence of an allegation is not evidence of a conflict. When an allegation of lack of independence is made a Practitioner should: objectively assess any such claim; decide accordingly; and advise the claimant of the outcome. The Practitioner may seek directions from the court The Declaration of Independence, Relevant Relationships and Indemnities Completion of the Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) required under the Legislation and the Code is a step that is taken once the Practitioner has determined that he or she is independent and takes the Appointment. Disclosure of interests or relationships that create a lack of independence, or a perception of a lack of independence, in the DIRRI does not remedy or cure the situation. The provision of a DIRRI is a process for identifying relationships that are not threats to independence, but need to be disclosed to creditors to ensure transparency. This chapter of the Code provides guidance to Practitioners on relationships, when a lack of independence may arise and disclosure requirements in situations where there is a relationship that does not result in a lack of independence. When considering the nature of any relationship, whether set out in this Code or not, Practitioners must always bear in mind the ultimate test both being, and being seen to be, independent. AUSTRALIAN RESTRUCTURING INSOLVENCY & TURNAROUND ASSOCIATION PAGE 20